Mr Mark Stretton of Deloitte Touche Tohmatsu will need to pull his working papers out and answer the question whether he has confirmed that the directors' remuneration consolidated across all entities including CPA Advice, Malaysia and Shanghai and AAT is lawful according to Article 45 of the constitution.

We know:-

- Diss and Hughes are directors of AAT
- Hughes, Dharshini and Awty are directors of Malaysia
- Hughes, Thomason, Leung and Diss are directors of Shanghai
- Haddan is a director of CPA Advice

All of the above are under the limitations contained in Article 45. and the auditor will know it.

HOWEVER,

CPA's FAQ in the 32 pager for the 202B, on page 14, "What is the remuneration paid........", have made a misstatement or have not told the truth, The offending statement is that "Article 45 of ...... the constitution does not apply in relation to Director fees associated with subsidiaries of CPA Australia Ltd."

This incorrect and not true. This is an unaudited section mind you so it is nothing to do with Mr Stretton.

The more I see regarding CPA Advice, the more I keep thinking about section 180 of the corporations act - Care and diligence
Specifically under section 2.

(2) A director or other officer of a corporation who makes a business judgment is taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:

(a) make the judgment in good faith for a proper purpose; and
(Hmm, conflicted under (b)? Getting around the constitutional limits on directors pay?)

(b) do not have a material personal interest in the subject matter of the judgment; and
(Does it mean that all the directors getting $70K or $100K for their troubles instantly fails this?)

(c) inform themselves about the subject matter of the judgment to the extent they reasonably believe to be appropriate; and
(I'd really like to see the business case for this. Was there an NPV analysis to justify the spend? A sensitivity analysis to show a range
given based on how many members signed up?, A proper risk analysis being the competing against yourself as the regulator?)

(d) rationally believe that the judgment is in the best interests of the corporation.
(If I was the reasonable person (heck you don't even have to be an accountant), spending millions in exchange for a few tens of
thousands just doesn't make sense. But then again it goes back to failures of (a) and (b), likely overriding the need properly do (c)
resulting in the delusion of (d)

The director's or officer's belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.

With regards to the CPA Australia and CPA Australia Advice disclosures my thoughts are as follows:

Note 20 (CPAA), in relation to the investment in controlled entities, does not appear to have been misstated. "The amount of investment represents the historical capital invested into each entity, which may be different to the fair value of that investment". The $1 is the share capital.

Note 10 and 15(i) (CPAA Advice) explain the difference between gross proceeds ($8,444) and fair value reported ($5,594) reduces the carrying value of the liability (since it is a long term interest free loan) and books the difference as an equity contribution ($2,850). This equity contribution is not the same as the historical capital invested and disappears from sight during the consolidation process of the CPAA accounts.

They should make it clear in the CPA Australia Account the gross value of the loan at risk.

Furthermore, Note 7 (CPAA Advice) and Note 11 (CPAA) regarding the intangibles reconciliation do not seem to match up inferring that the additions to intangibles in CPAA Advice are related party transactions. This was not disclosed in Note 12 (CPAA Advice) related party transactions.

I think CPA Australia Advice and CPA Australia provides a classic example of why the current leadership of CPA have failed the accounting profession badly.
However you want to explain the consolidated accounting entries, they certainly point to a fundamental failure of accounting. They have disguised/ hidden/ made opaque (describe it however you wish) a fully owned subsidiary which is clearly in financial strife ($7.4 million loss in 19 months on a revenue of $47,000), has an 'overdraft' from CPA of $20 million (of which $12million has already been drawn down as at time of the annual reports release, and the AGM) yet in CPA Australia annual report they have almost hidden this with a note to say $5,594,000 had been loaned to the subsidiary.

How can we as a professional accounting organisation that purports to uphold integrity and high standards in the marketplace possibly justify such a clear lack of transparency and openness. I would suggest it shows a failure on a number of levels and why the current CPA leadership have failed us badly

1. We know that the current CPA leadership are happy to use minimum disclosure and strict compliance with the law to hide things, so no surprises there. It's just par for the course for them. That's the sort of 'sales talk' accounting that gives the profession an awful name and reputation.

2. It raises questions about the role and obligations of the auditor Deloitte as to how they could approve this, even if it complies with the law/standards. Where compliance with accounting standards misleads and does not provide a true and fair view then they need to take the lead and say so. I suggest Deloitte need to reconsider what their role as an auditor is and to whom they owe an obligation. Is it to please the sales talk of a poor current CPA leadership who wanted to hide the true state of CPA Australia Advice from the members, or is it to the members of the organisation and to the public who give us a professional mandate?
I believe the latter should have prevailed and they have failed badly in that regard.

3. It raises fundamental questions about the failure of consolidated accounting itself. The issue with his are not new and one just needs to have a read of books such as

Corporate Collapse. Accounting, Regulathriy and Ethical Failure (2003) by Frank Clarke, Graeme Dean and Kyle Oliver, or their more recent The Unaccountable and Ungovernable Corporation (2014)

to appreciate this.
This is where CPA Australia should have been spending money with universities and others to do more research and investigation to lift our standards, rather than waste literally millions marketing Alex Malley.

This is why this last decade under the current CPA leadership has exhunibuted a failure to look at ways to improve our profession. I can list off three or four areas in accounting that need urgent attention but all they have been concerned with is putting up billboards with Alex Malley or promoting his stupid book The Nakes CEO, or chasing a global empire.
Another area would be integrated reporting. If ever there was an area where 'cream puffery' reigns it is in the push for this. Of course CPA Australia is a big advocate for this under the current leadership, and one now sees why.

We need accounting with grunt and we need to lift the standards of our profession. Not allowing them to be denigrated by salesmen who are endeavouring to hide and make reporting more opaque.

I would think every Business School in Australian Universities could take what is happening at CPA Australia as a case study in failed corporate governance, failed leadership of a professional membership body, and most importantly failure of an accounting body to serve the professiona and it's members.
Kick them out is all I can say.

Brett, well said. After all the other issues, internal governance, board extensions, remuneration levels, marketing spend, etc I believe CPAA Advice is the key issue that will bring about reformation to the society.

Even as recently as the last few weeks the CEO has been on TV begging for recognition for generating record surpluses, while on the other hand claiming this is a media hatchet job. Six directors (regardless of complicity) have resigned to avoid being further involved.

These surpluses have led to the establishment of CPAA Advice and the preposterous discrepancy between income and expenses. If they signed up one new representative every single day, it would take between 10 and 14 year to breakeven.

They have now put the entire Not For Profit members society at risk by generating (and spending) excessive profits from membership fees and exams, earning investment income from the surplus "war chest" (already taxed) and now have established a business in financial services. We are not a business.

It seems more likely after each revelation that political and public body intervention will occur to investigate the current custodians of our professional services body, and end this ten year experiment. But in the meantime members must keep speaking out until the next general meeting or sooner.

So I thought I would expand on MarkG's break even analysis. I know we thought something was off about CPA Australia Advice and their current structure but this has just blown me away.

I've made a few loose assumptions - people are welcome to refine this analysis for me:

Discounted to real terms - no increase in the nominal prices or expenses

No increase/decrease in expenses as the number of advisers increase.

Things like Tech and Professional services expenses are still included.

Lets also assume that you had an even mix of new advisers across all three categories - even though I doubt this is the case. Most advisers I have talked to just want to be authorised for limited advice so they can do what they were doing before the removal of the accountants exemption.

If you had 36 new advisers per year (more then the current take up rate) it would take 5 centuries to break even then recoup the losses sustained in the process. Even with 144 new advisers per year (or 12 per month) it would take 14 years to recoup the losses sustained in the process. The only way the losses could be recouped in less than 5 years would be to add 288 new advisers per year (24 per month).

Even if I wiped out the $1.56 million in technology and professional services expenses it would take 3 centuries, 10 years and 3 years respectively on the above adviser growth benchmarks.

I seriously doubt this is a financially viable company. If allowed to continue with the current cost structure we will be losing millions of dollars per year with a very real risk of never recovering those losses.

Bulls eye Robert.
And to think of the phenomenal amount being paid in salaries in this organisation, when just a reasonably simple break even analysis is enough to expose the folly.
It's pretty basic stuff.
But by gee the CPA senior executives and many of the directors sure did reap some handsome rewards for themselves from it. Close to $1.5 million in just 19 months. I find this just unconscionable behaviour from our purported leaders.
Let me encourage anyone to explain the numbers of CPA Australia Advice to family members and I would guarantees they will be gobsmacked.($7.4 million loss on revenue of $47,000 after 19 months).
It is just disgraceful.

I tried to explain this to someone and they said: Gee with all the advantages that CPAA Advice has, you would think they would make a lot of money.

Anyone who has been in business knows how hard it is to get the attention of your prospects. These guys had a captive audience of about 7,000 CPAs in practice and to date have managed about 25 sales of their product. Their product is simply not good enough.

it has 14 full-time equivalent staff members but yet the wage bill is $3.8 million, including that paid to directors and executives

the directors received $380,000 for CPA Advice work, and the executives $620,000, with only six meetings held it cost $63,000 a meeting
and $113,000 for the executives

making a loss of $5.7 million in 2016 on top of $1.7 million 2015

cumulative losses of $7.4 million, and no sign that there is ever going to be a return on investment

CPAA has made $20m available of which $8.4m has been drawn at 31/12/16 with another $4m loaned in February 2017

I don't know how president Tyrone Carlin could work one day a week, is paid by both companies and received $254,000 in less than 12 months for his trouble

one of the directors of CPA Advice, Suzanne Haddan, has her own financial services business Baldry Financial Services with it's own financial services license. Suzanne Haddan was also on the advisory committee setting up CPA Advice. This does not seem to be disclosed in the CPA Advice accounts as a disclosure of related party matters or potential conflict of interest

the money lost in CPA advice over 18 months is equal to the total surplus for the financial year 2016 of CPA Australia. Meaning our surplus for 2016 was 50% down due to CPA Advice burning money

Surely any significant surplus in the organisation simply means members are being overcharged or underserviced - the only revenue comes from members fees and selling CPD to members?

What a waste of director fees etc to those involved in CPA Australia Advice.

Wonder how much PWC was paid? Will this cost be disclosed to the membership of CPA Australia or will be it just be hidden some where in consultants fees?

I wonder what Clarke and Dawe would have made of the how situation. $20 million spend, over the top directors and management fees paid. Maybe they would be said it was the greatest investments in the accounting industry seen in many a year. Ha Ha.

Maybe the comedians will have a field day or even Joe Aston at AFR. So, he may say, did you hear the one about the accounting organisation that invested huge amounts of membership funds into a poorly run subsidiary around financial planning, yet it closed 3 years after it opened. Well, he may say, neither did most of the most membership or the general public. Not even the past chairman of ASIC Greg Medcraft or that Naked CEO aka Alex Malley, could inspire confidence into this enterprise. Luckily it was not an IPO offer, because ASIC would be asking questions and so would the government. Luckily for CPA Australia, the government and ASIC are having to spend their time looking into the banks and the financial planning industry. CPA Australia Advice is too small to waste their time on investigating.

Maybe this could be another successful chapter in Alex Malley's next book.

I'd like to know what role this advisory committee had in this sorry saga......

PUBLIC PRACTICE ADVISORY COMMITTEE
The Public Practice Advisory Committee provides the Board of Directors with advice and a forum for consultation on issues relating to the public practice sector. It also advises on the development of strategies, regulations and support services so that it can manage and enhance the reputation of members working in the public practice sector.

The committee did as much as the Divisional councils have done over the last two years: precisely nothing.

btw we paid $600,000 to PwC to tell us what Blind Freddy knew .. and why did the board not make the decision earlier? Because they didn't have any evidence!

CPA paid PwC's Strategy& $600,000 for CPA Advice report
... A CPA spokeswoman said the body would not provide members with a copy of the full report, done by PwC's strategy arm Strategy&, as it contained "commercially sensitive information". The body said the report was commissioned on the recommendation of an earlier report into the body by former auditor-general Ian McPhee.

One of the key rebel CPA members, Brett Stevenson, said it should have been obvious to CPA last year that the advice arm was not viable. "I think the review by PwC into CPA Australia Advice pretty much completes the professional whitewash done of all the wrongs exposed at CPA Australia," Mr Stevenson said. He said the PwC covering letter failed to mention the amount lost so far or the cost of closing down the operation or who should be held responsible for the failed operation.

"There are also no details of the actual financial budgets that allowed this to go ahead. They must have been fairyland stuff. After all the matters exposed at CPA Australia and this subsidiary, no-one has been held accountable, and the new board are pressing on with virtually absolute power with an even more disinterested and apathetic membership," Mr Stevenson said. Another member, Greg Angelo, has also demanded CPA release "the financial modelling plans undertaken" to set up the advice operation...

The CPA chairman and president Peter Wilson said the board needed the report to make a decision about the financial planning arm. "The ongoing losses at CPA Australia Advice have been a concern to everyone involved in our organisation," he said. "Part of the responsibility of a Board is to make decisions based on evidence. We needed to investigate whether there was any prospect of getting a return on the investment already made. Once it was confirmed that there was no prospect of financial viability we made the decision to exit the business. We've moved as quickly as possible to let authorised representatives know so that they could start planning a transition and we are committed to supporting them through that process."

It does appear that the board of CPA are not able to make a decision, by using their professional experience, or that of the so called well paid management team of CPA Australia. They seem to need to engage consultants like PWC for hundreds of thousands of dollars to make the decision for them, at just about every turn??? Are the council of Presidents unable to provided experienced advise, without the need to seek external advise.

So, why do the membership of CPA Australia really need this so called over qualified board, when they seen to require external consultants/ membership forum, etc to help them make just about every decision. Are they really worth the money they are being paid????????????????? Who will hold them to account???????????????? I suppose, they will determine their own performance each year, just like Alex Malley was able to determine his own pay packet.

Is the board of CPA Australia, full of auditors, who are unable to make a decision and a chairman only able to effectively deal with managing human resources??? This must be wrong, based upon the CV of the board members.

Can not the board of CPA Australia use the professional experience of Andrew Hunter, a banker with Macquarie Group, who supposedly run a business much large then that of CPA Australia????????????????

Maybe the management of CPA Australia will be farmed out to Macquarie Group, in order to better justify the decisions being made by the board and CEO of CPA Australia.

Is the staff mix at CPA Australia, so bad, that they don't have the right professionals within the organisation to make decisions??? This must be wrong.

The board of CPA Australia remind me of the ABC TV show Utopia, where every decision required external consultants to be engaged at hundreds of thousands of dollars to help make a decision at just about every turn. They needed all these consultants to help justify their own inability to make business decisions or put a case forward and stand behind it. Maybe the board is only really interested in the directors fees and any real decision that needs to be done, is undertaken by external consultants. Maybe they are not really worried about using the membership funds in the most effective manner, because it is not their money????? Maybe the board is meeting to plan the next board appointments, the end of year Christmas party and the what needs to be done to the next AGM to make it more exciting. Certainly this is not correct, but the board do not release the board minutes for members to really determine what they are doing.

Are the current board of CPA Australia, ineffective???? Is there the wrong mix of board members within CPA Australia?

One thing you can be sure, that next year they probably will give themselves a pay increase based on external consultants advise, and that of what other boards like RACV are being paid.